Bailouts Prompt Bipartisan Outcry

[hotlip]

Bailouts Prompt Bipartisan Outcry
GOP Lawmakers Assail Federal Meddling on Autos; Dealers Defended in Both Parties

By Peter Whoriskey
Washington Post Staff Writer
Wednesday, July 22, 2009

The government bailout of General Motors and Chrysler was roundly criticized by both Republicans and Democrats on Tuesday as a House subcommittee heard testimony from the chief of the Obama administration's auto task force.

It was the Republicans on the House Judiciary Committee's administrative-law panel, however, who raised the gravest alarms over the aid to the automakers, depicting the bailout as an abandonment of the rule of law and the practice of capitalism.

The government-led bankruptcy reorganizations of the companies "have been the leading edge of the Obama administration's war on capitalism," said Rep. Lamar Smith (R-Tex.).

When government gets involved in a company, "the disaster that follows is predictable," said Rep. Trent Franks (R-Ariz.).

The closing of more than 2,000 dealerships amounts to an "unprecedented taking," said Rep. Darrell Issa (R-Calif.).

The bailouts, in which the government invested billions in the companies in exchange for equity stakes and other compensation, has raised furious complaints from some of the companies' creditors who lost money in the reorganizations, the dealers whose showrooms are being closed and philosophical critics who say the government should have simply let the companies fail.

Ron Bloom, chief of the administration's auto task force, rebutted the criticism by noting that the bailout saved the companies and "literally hundreds of thousands of jobs." Moreover, he said, the creditors and dealers have received more under the bankruptcy reorganization than they would have if the companies had been liquidated.

As for the questions of fairness and the rule of law, Bloom noted that the reorganizations done through bankruptcy proceedings have received repeated court approvals.

Issa discounted the court rulings, comparing the dealer closings to the internment of Japanese Americans in the 1940s.

"The courts have made mistakes. I think back during World War II, the Japanese internment. Everyone thought it was okay from a court standpoint until long after the war."

After the hearing, GM spokesman Greg Martin said, "That type of rhetoric is unfortunate and does not match the dignified setting of Congress."

The driving political force behind much of the congressional criticism of the bailout, however, arises from the auto dealers who say they have been wrongly targeted by the automakers for closing.

Bloom, as well as the auto companies, argue that the automakers must reduce the number of stores -- that way, each remaining dealer can sell more cars and make more money. With higher profits, they say, the independently owned dealerships will be able to improve their stores, hire better salespeople and provide better service.

Accordingly, the government-approved plans for GM and Chrysler call for the closure of more than 2,000 dealerships.

But dealerships have proved to be politically powerful, and many Republicans and Democrats appear keen to help them.

The House has already approved a measure that would restore the closed dealerships. With the Obama administration opposing such a move, the two sides have been discussing a compromise, though there was no indication at the hearing yesterday of what shape that might take.

The dealers' supporters reject the administration's position that all must accept sacrifices for the companies' survival.

"There's a difference between making a sacrifice and being sacrificed," Rep. Hank Johnson (D-Ga.) told Bloom.

"It isn't just about a business. It's about a vital piece of the community," said Rep. Bill Delahunt (D-Mass.).